Women and retirement: 6 challenges to a secure future
A comfortable retirement is an expensive endeavor for everyone. Financial planners suggest one should shoot for an annual retirement income that’s roughly 85% of your preretirement income, depending on your continued fixed expenses. Translation? Everyone needs to save—a lot. But women should actually be saving more.
“Women are at a much higher risk of facing financial uncertainty in retirement and retiring with considerably less savings than men,” says Andrea Hartwig, Financial Planner at WEA Member Benefits. “Women face unique challenges. Generally, they spend fewer years in the workforce, earn less income, gravitate toward conservative investments, and have longer life spans than men.”
While not every woman will experience the same challenges, it is likely that most will face more than one, which compounds the problem. “Their road to retirement is more long and winding than that of their male counterparts,” explains Andrea, “making it even more critical for women to recognize key life events that can trigger a financial setback. Women need to be aware and prepare.”
Challenges facing women
1. LIVING LONGER
The life expectancy for men in the U.S. is 76 years. For women it’s 81.1 While five years may not seem like a lot over a lifetime, it does mean the average woman will need to save more to fund the extra years compared to the average man. From a financial perspective, this is significant—and the price tag on those years will likely be higher.
Longevity brings with it a greater potential for increased health care costs. “People often believe that once they hit 65 and qualify for Medicare, their health care costs are covered, but that simply isn’t the case,” says Andrea. “Medicare is a great benefit, but it’s far from free. There will still be out-of-pocket expenses that are not insignificant.”
It is estimated that the average couple retiring at age 65 will need $285,000 to cover health care and medical costs in retirement. Women will need more than men—$150,000 vs. $135,000.2 And that doesn’t include long-term care services, which, despite what many think, are not covered by health insurance or Medicare. This is an important consideration as:
- Seventy percent of those turning age 65 today will need some type of long-term care services in their remaining years.
- Women make up more than 70% of nursing home residents and on average need care almost twice as long as men.
- The annual median cost for a private room in a nursing home in Wisconsin is about $112,146, and a private room in an assisted living facility is $51,600, around the same cost as 40 hours a week of a home health aide.3
Health care continues to be one of the largest expenses in retirement. The longer you live, the greater the cost will likely be.
2. EARNING LESS
While strides have been made regarding equal pay, women are not always paid as much as men in the same fields and positions. According to the U.S. Census Bureau, women earn about a third less than men during their working lives, resulting in smaller contributions to Social Security, pensions, and other retirement accounts. It is a major contributing factor as to why women are 80% more likely to wind up in poverty than men when they’re age 65 or older.4
Women are also more likely to work part-time because they often fulfill other roles in the family requiring their time (like caregiving). Part-time workers may not qualify for their employers retirement plan, and again, lower income means less going into Social Security on their behalf.
3. TAKING CARE OF OTHERS
The pay gap issue is amplified for women who drop out of the workforce temporarily to be stay-at-home moms or to care for sick or aging parents. With 75% of all unpaid caregivers being women, the impact is far reaching and has long-term financial implications.5
Here’s what that means for women financially.
- Every year spent out of the workforce costs families three times the parent’s annual salary in lifetime income.6
- Women who take time off can fall behind in rank and miss out on opportunities for career advancement and increased income.
- Loss of access to an employer-sponsored retirement plan and a reduction in pension accumulation.
- Loss of contributions and years of credits to Social Security benefits.
However, Andrea notes, this shouldn’t discourage women from taking time out of their careers.
“The key is to plan for it. The earlier you start saving and the more you contribute, the more time you can comfortably take off from your career,” she says.
4. INVESTING TOO CONSERVATIVELY
By and large, women gravitate toward more conservative investments than men. Playing it safe is more comfortable and may be a good approach when near or in retirement, but such a strategy usually means lower earnings over the long run. “If you take this approach, you may need to invest more money to meet your goals. But if there’s a time to be more aggressive, it’s when you’re young. Because of the long timeline, you are in a better position to recover from market fluctuations,” says Andrea.
Having a better understanding of investing and the relationship between risk and reward will help you find an investment strategy that will help you reach your goals and still sleep at night. It’s a balance. And, don’t be afraid of getting some professional help. You can go to weabenefits.com/financialconsults to learn about financial consultation options and set up a phone or video conference with a financial planner.
The Investor Suitability Profile Questionnaire offered by Member Benefits can help you determine the level of risk you’re comfortable with. After providing some basic information about your situation and answering six questions, you will receive an indication of your investment style along with an appropriate investment allocation.
5. BEING SINGLE or SINGLE AGAIN
This challenge is really more about planning for your future than it is about marital status. Because nearly every woman will have sole responsibility for her finances at some stage in her life—whether single by choice, divorce, or widowhood—it’s important for women not only to have a plan but to also have ownership in the plan.
“Women should always be involved in conversations about finances, whether that’s at the financial advisor’s office or at the dining room table at home. This is not the place to hand off control. Taking responsibility for your own financial security will prepare you for whatever turns your life may take,” encourages Andrea.
6. MAKING BIG DECISIONS WITHOUT ALL THE FACTS
It goes without saying that any big decision should be made with care—and there may be no greater decisions to make right now than about your financial future.
“Here is where having knowledge about your long-term finances comes in handy,” says Andrea. Knowing how you (and your spouse if applicable) are saving and what kind of accounts you have—403(b,) IRA, 401(k), and/or your Wisconsin Retirement System—is significant, because each account type has different rules and restrictions, and each serves a strategic role in your retirement income stream.
Without that knowledge, people can make costly and irreversible mistakes. For instance, it’s all too common for people to dip into their retirement account early. In fact, 52% of all savers take early withdrawals—a move that can cost you dearly in three ways:
- Penalties for unqualified distributions typically run 10% but could be higher if the account has surrender fees.
- Taxes may apply to withdrawals and may push you into a higher tax bracket.
- Earnings on the money you withdraw will cease, and you will lose out on future growth from compound interest.
“While this may be tempting, especially in difficult times like the COVID-19 pandemic, it really should be a last resort option,” says Andrea. “Your retirement savings should be earmarked for retirement. Building an emergency fund where the money is easy to access is a better way to plan for surprise financial situations that pop up in daily life.”
It’s all connected
Generally, the closer you get to retirement, the more complex your finances become—and it’s also a time when you are financially vulnerable. You will have several big decisions to make, including when to stop working, when to take Social Security, how to pay for health care, and how to generate cash flow from your retirement assets. These decisions are interconnected and could make a difference in your living costs and lifestyle in retirement—and ultimately determine when you can retire.
Andrea advises, “You really want to have a handle on these well before retirement. If you have a solid plan and an understanding of what your plan entails, the decisions will be easy to make.”
The information in this article is provided only as a summary of complicated topics and does not constitute legal, tax, investment or other professional advice on any subject matter. Further, the information is not all-inclusive and should not be relied upon as such. All investments hold risk and there can be no guarantee that your investments will be profitable or that your goals will be achieved.
1 U.S. Census Bureau | 2 HealthView Services (a provider of health-care cost projection software) and Fidelity Investment (2019)
3 Wisconsin Office of the Commissioner of Insurance (OCI) (2019) | 4 2018 report from the National Institute on Retirement Security
5 American Association for Long-term Care | 6 Center for American Progress
ARTWORK: Daisy Garrett
Take advantage of our financial planning services
Our financial advisors specialize in working with Wisconsin public school employees, understand the unique retirement benefits available to them, and are experts in coordinating those benefits. We take time to help you identify and prioritize your financial goals, determine whether you are on track to meet your goals, and provide you with the information and tools to help you get there.
Member Benefits’ financial planning services are designed to address the changing needs of Wisconsin public school employees at various points in their careers and lives. And there are no commissions, which means you receive an unbiased analysis of your situation.
1-800-279-4030, Extension 6730
Mutual fund change coming in August
The Fidelity Diversified International K6 fund is going to be replaced with the JHancock International Growth R6 fund for both the 403(b) and IRA mutual fund lineups. The change will take effect August 3, 2020.
There will be blackout periods in which some transactions are limited or stopped until the change has been completed. Online distributions, future investment election changes, exchanges, and rebalances will be disabled on or around 3 p.m. on July 31, 2020, and are expected to be restored on or around 3 p.m. on August 5, 2020.
The JHancock International Growth R6 seeks to keep pace with rising markets though capital growth by investing in high-quality growth stocks in developed countries primarily in Europe and Asia. The fund allocates investments through a broad range of sectors across different countries and regions.
Give us a call at 1-800-279-4030 if you have any questions about the fund or the blackout.
This is not an offer. Securities can be offered by the prospectus only. The JHancock International Growth R6 fund is not suitable for all investors and the prospectus should be read carefully by an investor before investing. Investors are advised to consider the investment objectives, risks, charges, and expenses before investing. This prospectus, which is available at SEC.gov and weabenefits.com/investments and may be obtained by calling 1-800-279-4030, contains this and other information about the fund.
Important information for members and plan sponsors
On the weekend of August 21, our vendor for the yourPLAN ACCESS and yourMONEY websites will be performing scheduled maintenance, and these websites will be unavailable to members and plan sponsors.
We anticipate the systems will come down after nightly processing at around 10 p.m. on Friday, August 21, and will be available again once the scheduled maintenance is completed. yourPLAN ACCESS and yourMONEY should be back online no later than 7 a.m. on Monday, August 23.
Mutual fund change
Our mutual fund change is complete. Read more about the mutual fund change.
Call us at 1-800-279-4030 if you have any questions.
Keep calm and invest on
As of March 2020 when this article is being written, we’re dealing with an unprecedented health crisis. Our personal lives are being affected in a myriad of unexpected ways. It is understandable that most of us probably feel anxious and unsure about the future.
The daily news has raised fear in investors, and the disruptions to our daily lives have changed the way we’re spending our money. But when it comes to saving for your future, it’s more important than ever to keep a clear head.
You may be tempted to stop funding your retirement account, move it to something very conservative, or cash part of it out. But before you make any rash decisions, take a breath and remember: One of the best things you can do right now for your retirement is to stay the course for the long term.
Noted investor Warren Buffet saw this over 30 years ago when he described two “super-contagious diseases” that will forever have occasional outbreaks: Fear and greed among investors. As he famously stated as a strategy against this “disease,” people should “…be fearful when others are greedy and be greedy only when others are fearful.”
Although too simplistic to be construed as Buffet’s recommended investment strategy, his point is well founded. It’s all too common for investors to bolt when things go poorly.
And at the moment, fear is ruling. That’s why it’s more important than ever to be as rational as you can about your investments during this trying time. Getting some perspective can help you get there.
History is our teacher
Failing to recognize the dangers of letting your emotions drive investing decisions can be disastrous when your life savings are at stake. To understand what effect moving assets out of equities during a volatile market such as the 2008 recession has on account returns, in 2017 Fidelity took a poll of their investors and found that those who continued to contribute to their 401(k) plans between June 2007 and June 2017 benefited from, on average, a tripling of their account balance. For the average baby boomer, the account balance in their 401(k) plans was $115,000 in June 2007, fell to $85,000 at the beginning of 2009, and rose to $315,000 by June of 2017 (Forbes).
Admittedly, it can be difficult to look at a significant drop in your investment portfolio. But if, for example, you stayed the course during the 2008 recession, you were rewarded with an over 11-year bull run. Consider that fact in light of today’s market.
Further, stock market corrections happen more than you probably realize. Over the past 70 years, the benchmark S&P 500 has undergone 37 corrections of at least 10%, not including rounding (Yardeni Research). Stock market corrections usually run their course quickly, and you may profit much more by keeping the long-term view in your sight. (Past performance does not guarantee future results.)
Careful about getting too conservative
It’s understandable if the market volatility makes you feel like you want to go with more conservative investments or even pull out of your mutual funds all together. But know that while that may shield you temporarily, those alternatives have a risk as well—the risk that the rate of inflation will outpace the rate of return on your investments. For example, putting all your savings into cash would leave you exposed to erosion in its value from inflation. Younger people would find it extremely difficult to accumulate meaningful savings. Retirees would shorten the number of years they could cover their retirement expenses, as they still need exposure to stocks and bonds to maximize their nest egg.
Money invested in a fixed-income product like the Prudential Guaranteed Account (PGI)* with Member Benefits may provide investment stability, but it also limits earnings. If you choose to invest entirely in the PGI, you lose the ability to earn as much as you may have been able to if you had invested more diversely in stocks.
Mike Driscoll, Managing Director of Sheridan Road and an Accredited Investment Fiduciary, has 40 years of experience and a lot of knowledge in the financial industry. Mike is also a longtime WEA Member Benefits advisor, and has personal work experience with the PGI. He explains, “The guaranteed fund from Prudential provides stability in periods of market disruptions. Because the fund does not invest in stocks, it allows investors to minimize the impact of volatility in the equity markets. However, the fund is not designed for short-term trading, but for long-term stability of a portion of an investor’s account balance.”
Keep these things in mind: If you’re a younger person, time is on your side in terms of the market and your future ability to generate income. If you’re older and closer to retirement, you may want to be more conservative with your investments—but don’t miss out on the potential earnings of stocks and bonds. Delaying Social Security is another option. It may be a good time to revisit your spending goals and budget so you know exactly where you stand today.
Creating a well diversified portfolio appropriate for your personal situation is important and may help you with market volatility. How to determine what is appropriate is based on factors like your age, your goals, your time horizon (when you need to use the money you invest), and your emotional tolerance for risk.
Don’t try to time the market
Emotions and deeply ingrained biases influence our decisions every day. They are also deeply rooted in personal experiences that influence our decision-making. But they can cause us to behave in irrational ways. Especially in times of uncertainty, investors tend to make investment choices based on emotion rather than careful consideration of their long-term plan. “It’s tempting to sell stocks or cash out your retirement savings when things look shaky, then buy again when the outlook is bright. But trying to time the market almost never pays off because no one really knows what will happen next, even in these challenging times,” says Brenda Echeverria, Financial Planning Supervisor at Member Benefits. “Moving out of your investments into cash or very conservative investments means you may lose any opportunity to recover your losses when the stock market rebounds.”
Mike explains that Nobel Prize-winning psychologist Daniel Kahneman demonstrated this emotional tendency with his loss aversion theory, which demonstrates that people feel the pain of losing money more than they enjoy gains. Our natural instinct is to flee the market when it starts to plummet, just as greed prompts us to jump back in when stocks are skyrocketing (Capital Markets Group, How to Handle Market Declines, March 2020). Adds Mike, “Emotional reactions are normal when events that impact us seem beyond our control. You wouldn’t be human if you didn’t fear loss. But keep in mind that both (instincts) can have negative impacts on your finances.”
Right now, many people are trying to time the market by moving their funds around. There are risks and limitations to this strategy. For one, most investments, including several offered by Member Benefits, have trade restrictions that place a limit on short-term trading. Those who make too many trades within 30 days of purchase could find themselves put on “roundtrip restriction,” which bars shareholders who employ this tactic from making trades for a certain number of days.
If you are in the PGI and participant level protections (PLP) become active, it could limit the outflows from the account. Although PLPs do not apply to benefit responsive withdrawals (such as retirement income), if triggered, they do restrict withdrawal activity. Remember, PLPs are there to protect the account and account holder. For more information on PLPs, please see our article, Protecting a legacy.
If you are considering cashing out your retirement funds temporarily and putting them in the bank, know this: Doing so may make you subject to taxes—and you may be limited in coming back to your retirement program. Also keep in mind that the PGI offers a higher interest rate than a bank.
You have a unique advantage
As a Wisconsin public school employee, you have an advantage that many do not—the Wisconsin Retirement System (WRS) pension plan. This gives you a foundation of retirement income you can’t outlive.
Keep this in mind when you’re reading articles about the market and the COVID-19 crisis. The general population these articles are referring to are in a different situation than you are. It’s like comparing apples to oranges.
If your WRS pension and Social Security are taking care of a substantial percentage of your living expenses, you may not need to be so conservative with your 403(b) and IRA accounts. But of course, everyone needs to make the best decisions based on their own situation, investment objectives, and risk tolerance.
If you want a more in-depth review of your savings strategy, contact us for a complimentary consultation. You may find yourself investing too conservatively, not conservatively enough, or you may just have questions and need some guidance. Visit our financial consultations page. Or if you have questions, feel free to call us at 1-800-279-4030. Our staff is still available to help you from 7:30 a.m. to 5 p.m. Monday through Friday.
*Interest is compounded daily to produce a yield net of Prudential’s administrative fee of 0.60%. PRIAC is compensated in connection with this product by deducting an amount for investment expenses and risk from the investment experience of certain assets held in PRIAC’s general account. For more information, go to weabenefits.com/pru. This is not an offer. Securities can be offered by the prospectus only. For more information and to access the prospectus, go to weabenefits.com/investments.
Stay on course
Investors who have been willing to ride out the volatile returns of stocks over long periods of time generally have been rewarded with strong positive returns. A long-term investment strategy offers a balanced approach to both risk and reward. Best practices associated with long-term investment strategies often include the following:
- Keep a long-term focus and don’t try to time the market.
- Spread out your risk.
Diversifying, or putting your money in different types of investments, has long been recognized as an effective way to manage your risk. In theory, when certain types of investments are declining in value, other types are gaining value. A well diversified portfolio can lessen the impact of market volatility. (Diversification does not protect against losses or assure a profit.)
- Know your risk tolerance and invest accordingly.
- Utilize dollar cost averaging.
If you continue making regular, ongoing contributions to your retirement account, when the market falls you will be able to purchase more shares of a mutual fund for the same dollar contribution. It’s like buying when the market is on sale. The last thing you should do is stop contributing—it’s like skipping the sale on school supplies and waiting for them to go back to full price before buying. (Dollar cost averaging does not assure a profit and does not protect against loss in a declining market.)
- Save early and save more.
Contribute as much as you can to your savings plans as early as possible to get the full benefit of compound interest. Compounding happens when earnings on your investments are reinvested in your account. The reinvested earnings may also have earnings, and then those earnings are reinvested and so on.
- Rebalance your portfolio as needed.
- Investigate investment options.
We have a variety of investment options available to suit your needs. Take our investor suitability questionnaire to find out what investment style may be best for you. Then review our investment strategy options.
- Take advantage of Member Benefits’ expertise.
Investing involves market risk, including the loss of principal.
Don’t panic over stock market volatility
But watch your emotions. Despite our best intentions to act rationally, basic impulses and emotional responses can influence our decisions, often against our better judgment.
There is an old saying on Wall Street that the market is driven by just two emotions: fear and greed. Succumbing to these emotions can have a profound and detrimental effect on your portfolio. “It’s tempting to sell stocks when things look shaky and buy again when the outlook is bright. Such market timing almost never pays off because no one really knows what will happen next,” advises Brenda Echeverria, Financial Planning Supervisor at Member Benefits. “Just as greed dominated the market back during the dotcom boom, the same can be said of the prevalence of fear following its bust. In a bid to stem their losses, many investors dumped their stocks, but in doing so they lost any opportunity to recover their losses when the stock market rebounded.”
The best thing you can do right now? Don’t panic. We’ve had market corrections before. History clearly illustrates that the market will drop some days sometimes for weeks or months, and the market will go up some days sometimes for weeks or months.
Accept the predictable unpredictableness of the market. If you’re thinking “easier said than done,” remember:
- Retirement accounts are set up for long-term investing, and the expert advice is typically to remain invested even when stocks are down. Better to ride out market slumps, focus on your long-term goals, and try to ignore short-term volatility.
- Mutual funds are generally not designed for frequent changes/trades. A well-diversified portfolio will help alleviate some of the effects when a correction occurs.
- Know your risk tolerance and invest accordingly. Use our free Investor Suitability Profile Questionnaire to help determine appropriate investments for you.
If you are experiencing more volatility than you’re comfortable with, it might be wise to take a look at your portfolio. Take advantage of Member Benefits’ expertise. Log in to your account at yourMONEY, or contact us at 1-800-279-4030 if you need help or have questions.
Don’t let your ne$t egg get poached
If you’re in or near retirement, guess what—you’re a real catch. Assuming you’ve been saving over a number of years in your 403(b), IRA, and/or spouse’s 401(k), your retirement account balance is probably becoming pretty significant, which is of great interest to investment brokers, financial planners, and insurance agents.
According to a June 2018 report by the U.S. Securities and Exchange Commission (SEC), Americans over the age of 50 currently account for 77% of financial assets in the United States. And as of the end of 2017, retirement assets for those 65 and older reached $28.2 trillion dollars! Just five years ago, that number was $16 trillion dollars. That’s a lot of money—and puts your assets on the radar.
Perhaps at this point in your career you’re wondering if you need to do something differently with your retirement savings. Or maybe you’ve been contacted by an investment broker and have heard something like this:
- “You can’t stay in your current plan now that you’re retiring, so you’ll have to move it.”
- “This new account will double in 10 years.”
- “It’s only a 1% fee to rollover.”
- “I don’t charge a fee for planning.”
While these statements may not be untrue, they may omit some of the facts. Whether this is by choice or through carelessness on their part, it’s critical to know if you’re missing some very important information needed to make the best decision for your circumstances.
If you’re considering making a move with your retirement account, we have some guidance for you to follow so you can be aware of some potential consequences of your choices as you navigate this important financial consideration.
Keep your emotions in check
It’s a fact—the decisions we make about money are often fraught with emotion. And the thought of making money last through a potentially long retirement can feel daunting. But first and foremost, do your best not to let your emotions overly influence your financial decisions.
One of the most common emotions driving our money decisions is fear. According to Brenda Echeverria, Financial Planning Supervisor at Member Benefits, “People are afraid they won’t have enough money, worry whether their asset allocations are appropriate, or hear about what others are doing and wonder if they should be doing it too. Emotions can be useful in driving people to take action, but they can also lead to disastrous results if they drive the decision.”
Educators in particular are natural helpers. It’s common to feel obligated to use the services of someone they know. “I often hear from people who know someone, like a friend or a neighbor, and feel like they need to go with them for financial help, products, or services,” adds Brenda. “They don’t want to hurt their feelings or risk hurting the relationship. But I tell them to keep in mind that this is a business transaction. They are not doing you a favor, they are making a living. And you have the right to make your own decisions on who you want to do business with.
“Money is personal. While you will certainly have feelings surrounding it, don’t let them take over your decision-making process and potentially jeopardize your financial security.”
Don’t believe everything you hear
Since older folks are a growing segment of investors, financial services firms are increasingly focusing their marketing and sales of investment products to investors in or nearing retirement. One common marketing approach is to invite seniors to an investment seminar and offer them a free meal. But as we all know, there’s no such thing as a free lunch. The seduction of high returns or quick profits are often touted at these events, but there’s usually a catch. And it can be difficult and costly to undo certain moves.
As a general rule, the more guarantees or promises you are getting with a product, the more restrictive the withdrawal options. Many insurance company annuities have surrender periods of five to seven years. This means that you are locked into the contract for that period of time and can’t withdraw your money without paying surrender fees. “It’s not uncommon for people to fall into that trap, hoping to get big rewards quickly,” Brenda says. “Unfortunately, they don’t realize until it’s too late that if they need to take their money out, they can’t do it readily.”
Annuities are complicated and can be very difficult to understand. “Wisconsin public school employees already have two forms of annuities in retirement: WRS and Social Security. There may not be a reason for another annuity in their financial plan,” Brenda adds. She encourages caution when being presented with annuity options.
“Our participants will say, ‘the broker I talked to said I have to move my money out of my 403(b) now that I’m retired or changed careers.’ This is not true of their Member Benefits account, and it could result in a poor financial decision for the participant.“
Secondly, our members frequently report getting misinformation from various brokers looking for their business. One common line is being told they have to move their retirement account because they can’t stay in the current plan or they can’t roll over into a new employer’s plan, even though that may not be true.
Brenda explains, “Our participants will say, ‘the broker I talked to said I have to move my money out of my 403(b) now that I’m retired or changed careers.’ This is not true of their Member Benefits account, and could result in a poor financial decision for the participant.”
Participants in our IRA and 403(b) programs can keep their accounts with us for as long as they want regardless of their employment status and continue to take advantage of our low fees. Your Member Benefits’ 403(b) and IRA accounts can remain with us whether you retire, change districts, move out of state, or change professions. Additionally, both can be “stretched” over your lifetime if you choose.
However, when you retire, you are no longer eligible to open a 403(b) account because you are not working. So once that account is closed, there’s no coming back. “I can’t tell you how many retired people I have talked to who want to come back after they moved their money and were unhappy to learn they no longer can,” Brenda explains. “Unfortunately, we have to disappoint them. It’s hard.”
Likewise, with the IRA, you can stay as long as you like, but if, for example, you close the account and move out of state, you may not be eligible to reopen an account.
Always validate the details given by your provider before you take any action in moving your account. When discussing investments, a broker or advisor should discuss all of the risks, restrictions, and costs with you and provide complete and accurate information.
Decide what is fair and reasonable
So how do you know what is a fair and reasonable price to pay? Before making a money move, you need to understand—really understand—the implications of your decision.
The bottom line is this: Do the benefits justify the cost? Know what you’re buying, exactly how much it will cost, and what you stand to gain (and/or lose) from the move. Dedicate some time to gather the necessary information, and do your due diligence. “It will be time well spent,” Brenda assures, “because this is your hard earned money and future income we’re talking about.”
Uncover the total cost
When you’re talking fees with the agent/broker, ask for a list of all of the costs and identify which are one-time fees and which are ongoing. Fees may include investment fees, advisory fees, and more. (Note: Brokers may use the terms “costs” or “expenses” instead of “fees” when referring to their products.)
For example, you may be charged fees associated with the product that the agent doesn’t receive, like mortality and expense (M&E) fees that go to the company. And, if you are adding premium services, such as ongoing investment advice, you’ll typically pay a percentage of your assets on top of fund fees.
Is it worth it? Maybe, but adding layers of fees can cut the chances that your money will last. Every dollar you pay in fees is not earning interest in your account. So consider the potential earnings you may be losing out on.
It may help you get a more accurate perspective by converting any percentages to actual dollars. “I often hear, ‘it’s just 1%,’ but when I convert that into dollars, it’s a real eye-opener for people,” says Brenda. “And these dollars are typically an annual, recurring expense.”
Our fees are in plain sight
Participants in Member Benefits’ 403(b) and IRA programs enjoy low fees (0.35% for our 403(b) and 0.45% for our IRA) that are capped annually. “Typically, the larger your balance, the more fees you pay in terms of dollars—but that’s not true here,” Brenda says. “Mutual funds do have their own fees. But the administrative fees for participants in our 403(b) are capped at $500 annually, and for the IRA, fees are capped at $600 for WEAC members and $750 for nonmembers. Our fee cap means more of your money stays in your account and continues to work for you.”
Here are the main fees you need to watch for and quantify (Member Benefits does NOT charge any of these fees):
- Mortality and expense (M&E) fee.
- Commissions (loads).
- Management fee (unless you participate in the WEA Financial Advisory Managed Account Solution).
- 12b-1 fee.
- Annual contract charge.
- Separate custodial fee.
- Surrender charge (withdrawal charge).
- Wrap account fee.
Remember, the general public does not have access to a program like ours—a very low-cost investment platform with licensed, non-commissioned staff.
Consider these tips when making decisions about your retirement savings.
- Be aware of how emotion can impact your financial decisions.
- Don’t just take someone’s word for facts—do your due diligence before making any decisions.
- Set realistic short-, medium- and long-term goals, then work backward to plan how to get there. Decisions become less complex when you have goals.
- Use financial tools to help. Visit weabenefits.com/calc to access many free financial calculators. Before you consider any investment, you need to understand risk and determine your personal risk tolerance. We recommend using our Investor Suitability Profile Questionnaire calculator to find out what kind of investor you are.
Participating in a financial planning service from Member Benefits can help you get a more accurate picture of your financial situation. You might want to discuss your future goals and get our help to create a plan to reach them. If you are closer to retirement, we can help you look at important factors you may not have considered, such as:
- How long should you estimate your retirement years to be?
- What tax bracket will you likely be in during retirement and how can you plan for it?
- How will you budget for things such as replacing cars?
- How do you draw from WRS?
Contact us at 1-800-279-4030 or email@example.com for more information.
Be a savvy investor—get the facts first and refuse to be rushed into any decisions. Rarely (if ever) do you have to invest your money on the spot. A good investment will be available tomorrow or next week or next month, when you are ready and understand where your money is going.
Do your homework before you make a move
Investment salespeople (who offer securities) must be licensed. The firm must be registered with FINRA, the SEC, or a state securities regulator—depending on the type of business the firm conducts. An insurance agent must be licensed by the state insurance commissioner where he or she does business.
Check them out
- For a broker or investment adviser, use FINRA BrokerCheck or call the FINRA BrokerCheck Hotline at 800-289-9999.
- For an insurance agent, check with the Wisconsin Office of the Commissioner of Insurance.
- For all sellers, contact the Department of Financial Institutions at 608-266-9555.
Ask questions until you are satisfied that you know what you are buying and understand the risks and costs. You should know the answers to questions like:
- What are the risks of this investment?
- How much does it cost initially to purchase the investment?
- What, if any, additional or ongoing costs will I have to pay?
- How liquid is this investment? If I need to sell or cash in the investment, how readily can I do so?
- What happens if I decide to sell or cash in my investment? Are there surrender charges? Other fees?
- For what type of investor is this investment a good/bad idea?
- Is the investment registered? If so, with which regulator?
If you have been defrauded
If you believe you or someone you know have been defrauded or treated unfairly by a securities professional or firm, you can send a written complaint to:
FINRA Investor Complaint Center
9509 Key West Avenue
Rockville, MD 20850-3329
Phone: 240-386-HELP (4357)
Complaints can also be filed online at finra.org.
SECURE Act 2020 FAQs
Significant changes made by this new legislation may impact you and your financial plans, especially for those in their 50s and 60s who are nearing retirement. The new law includes changes to required minimum distributions (RMDs) for both you and your beneficiaries.
Here are a few questions and answers regarding changes in the SECURE Act that may most affect you.
I turned 70 ½ in 2019 and am scheduled to take my first RMD by April 1, 2020. Can I take advantage of the law’s increase in the age for starting RMDs at age 72?
No, only account owners who turn 70 ½ after December 31, 2019 can start taking their RMDs at age 72.
The SECURE Act eliminates the “Stretch IRA.” What are the new rules for people who inherit retirement accounts?
Those who inherit from people who die after December 31, 2019 must take the money out and pay any taxes due within 10 years. Many beneficiaries will now see higher taxes and a shorter distribution period for inherited retirement accounts under this change. The bill generally exempts surviving spouses, children under the age of majority (age 18 in Wisconsin), and some others. These individuals will follow current rules.
This provision is not retroactive, so it will not affect those who inherited an IRA in 2019 or prior years.
Does the SECURE Act eliminate stretch for all beneficiaries?
No. The law carves out exemptions for certain beneficiaries, which are now called eligible designated beneficiaries (EDBs). They include surviving spouses and minor children up to majority – but not grandchildren. Also included are disabled and chronically ill individuals (as defined by the IRS) and individuals not more than 10 years younger than the IRA owner (generally, siblings around the same age).
For example, an IRA owner dies in 2020 and leaves her IRA to her minor child. The minor child can still stretch the same as before, but only until that child reaches the age of majority (which is age 18 for Wisconsin). Once the child reaches majority, he or she is no longer an EDB, so the 10-year rule will apply and the plan assets will have to be paid out by year 10, or age 28.
In another example, an IRA owner dies in 2020 and leaves her IRA to her minor grandchild. The grandchild is not considered a EDB, so the entire balance must be emptied by the end of 10 years.
Once an account owner turns 72, will they also need to fully distribute their account within 10 years?
The 10-year rule only affects beneficiary accounts of those not considered an EDB. Account owners can still stretch their accounts according to their life expectancy.
How do RMDs work under the 10-year rule? Are RMDs required during the 10 years?
No. Under the 10-year rule, there are no RMDs during the 10 years. According to the new law, the entire IRA balance must be emptied by the end of the 10 years. Failing to withdraw funds within the 10-year period would result in a 50% tax penalty on assets remaining in the account.
Beneficiaries can withdraw any amounts they wish over the 10 years, giving them some planning flexibility during that time to withdraw funds when it best fits their tax situation.
I’m 70 ½. Can I make Traditional IRA contributions?
Yes. If you have earned income, you can now make a Traditional IRA contribution starting in 2020 tax year. This also includes spousal contributions.
The new law will give you additional time to do Roth IRA conversions without having to worry about the impact of RMDs. However, once RMDs begin, those RMDs cannot be converted to a Roth IRA. Those over 70 ½ in 2019 won’t be able to save in an IRA for 2019.
Am I allowed to make a charitable donation from my IRA now that the RMD age is 72 if I’m 70½ – 71?
Yes. Currently, people who are 70 ½ or older can give money from a Traditional IRA to one or more charities and exclude the amount donated from their taxable income. Nothing in the law changes that.
What should I do now?
- It’s very important to review your beneficiary designations on your retirement accounts to ensure they align with the new rules and your wishes. If you have a retirement account with Member Benefits, log in to your account at yourMONEY or give us a call at 1-800-279-4030.
- If you have a trust, you should review the trust’s language to see if it still aligns with your intended goals.
- Review your tax situation and how the new rules will impact the true amount of wealth you are passing to your children.
There may be several strategies to consider depending on your circumstances, so it pays to be proactive. Consult your personal advisor or tax attorney for assistance.
403(b) and IRA contribution limits for 2020
IRA contribution limits remain the same, but 403(b) contribution limits have increased this year. Take advantage of these new limits to increase your retirement savings.
- The 2020 limits for the 403(b) are $19,500, with the age 50 and over catch-up at $6,500 for a total of $26,000.
- The limit on annual contributions to an IRA remains at $6,000, with the age 50 and over catch-up limit at $1,000 for a total of $7,000.
Visit weabenefits.com/limits for more information or call us at 1-800-279-4030 if you have questions.
Time to review 403(b) and IRA contribution limits
The contribution limit for the 403(b) increased from $19,000 to $19,500 in 2020. The limit on annual contributions to an IRA remains unchanged at $6,000. If you’re not maximizing your contributions, you may wish to re-evaluate the amount you’re putting toward retirement. Not only do you lower your taxable income, you ensure that you’re doing everything you can to reach your retirement goals.
Elective 403(b) Contribution Limits
|Calendar year||Salary Reduction Contribution Limit||15 Years of Service Catch-Up||Age 50 and Over Catch-Up||Possible maximum|
For your 403(b) account, some employers only allow changes at the start of the school year and then again in January. Others allow more frequent changes. Both you and your employer will need to sign a salary reduction agreement.
Some districts may allow Roth 403(b) contributions. Your Roth contributions and your pre-tax contributions combined must not exceed the $19,500 limit.
IRA (Roth and Traditional) Contribution Limits
|Calendar year||Under age 50||Age 50 or older|
You may contribute to both a Roth and Traditional IRA, but your combined contributions must not exceed the annual limits.
If you make automatic IRA contributions using SmartPlan or through payroll deduction (available in districts offering Trust Advantage™), your contributions do not adjust automatically to meet the new limits. To make adjustments, call 1-800-279-4030 or print out an IRA Contribution Form.
If maxing out contributions is not realistic for you right now, remember: With compound interest, even a small amount invested today can grow to a large sum by retirement.
NOTE: Because the maximum Roth IRA contribution may be reduced depending on MAGI (Modified Adjusted Gross Income), some high-income taxpayers may not be able to make Roth IRA cotnributions; however, they could make Traditional IRA contributions.
Ready to rollover to a WEA Member Benefits IRA?
Managing your investment accounts is easier when you consolidate. Consider rolling over into our IRA program where you’ll pay ONE low administrative fee up to an annual fee cap.**
It’s even easier to save by making automatic contributions from your savings or checking if you’re still working.
Here’s a few reasons to rollover your IRA to us:
It’s open to family members. Your family, including your spouse or domestic partner, children and their spouses, parents, parents-in-law—and in some cases, your grandchildren—may also be eligible to participate in our IRA program.1
Low fees save money. Fees charged by some plans can take a big bite out of your earnings. The number one factor in determining your rate of return—after asset allocation—is cost. To make the most of your invested dollar you will want to minimize the fees you pay.
Our IRA has just one low annual administrative fee (0.45%) that is capped annually at $600 for WEAC members $750 for non-members. No other administrative fees apply; however, mutual funds include investment management and redemption fees.
Rollover with ease. We can help you complete your transfer or rollover in a few easy steps. It only takes about 5 minutes with the help of one of our technical assistants.
Our enrollment experts will help you:
- Evaluate your current provider.
- Prepare paperwork.
- Monitor the transfer process.
For more information, give us a call at 1-800-279-4030, Extension 8568, or start the process online at weabenefits.com/rollover.